Analyst calls quantum computing company D-Wave 'most defensible choice' in the space

D-Wave Quantum is the most defensible choice among pure-play quantum computing stocks, Motley Fool analyst Anders Bylund argues in a new post. Unlike its competitors, the company has paying customers and a dual-platform strategy, he explains.

“D-Wave Quantum is a genuine rarity,” Bylund writes, as the company is a pure play on quantum computing, and customers are already using its systems.

D-Wave’s technology helped telecom giant AT&T to cut the time needed to complete a complex task from around an hour to under 15 seconds, D-Wave CEO Alan Baratz noted during the company’s second-quarter earnings call. In the period, D-Wave’s remaining performance obligations surged 668% year over year to $40.7 million. More than half of that total is expected to turn into revenue over the next year, Bylund writes.

He also points to the expansion of D-Wave’s business. In January, it acquired Quantum Circuits, a developer of superconducting gate-model quantum computing systems that process information step by step. D-Wave itself uses an alternative approach, quantum annealing, in which a problem is solved as a whole. Combining the two technologies is expected to allow D-Wave to become the first company to deliver fully error-corrected, scaled gate-model quantum computing. By 2032, it expects to develop a system capable of successfully performing more than 1 million operations, which will support initial quantum chemistry and quantum AI applications.

This year has brought turbulence alongside D-Wave’s progress, Bylund writes. Last Tuesday, August 25, the company announced that CFO John Markovich would retire effective Wednesday, September 2. The announcement sent the stock down 9.5%. The company is burning cash quickly and investing heavily in building a new gate-model business, which may make this an inopportune time for a leadership transition, the Motley Fool analyst notes.

He also notes that D-Wave has been actively raising capital by issuing additional shares. As a result, its share count has doubled in two years. The stock currently trades at a price/sales ratio of 500. That valuation assumes “everything goes right” and leaves the company with almost no room for error, Bylund argues.

On balance, the advantages and drawbacks make D-Wave the most defensible choice among pure-play quantum companies, in Bylund's view. Still, he flags that investors seeking exposure to quantum tech without taking on significant risk should consider shares of tech giants such as IBM or Alphabet.

D-Wave shares have plunged 35% year to date. Still, Wall Street remains broadly upbeat on the stock. According to MarketWatch data, it has 16 “buy” ratings versus one “hold” and one “sell.” The average target price is $35.70 per share, implying 110% upside from the last close on Friday.